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Pitney Bowes Beats on Q4 Earnings

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Pitney Bowes Inc. (PBI - Analyst Report) reported results for the fourth-quarter and fiscal 2013. The company reported non-GAAP earnings (excluding one-time items) of 49 cents a share for the fourth quarter, which were 6.5% above the Zacks Consensus Estimate of 46 cents. However, quarterly earnings were flat year over year.

For fiscal 2013, the company reported non-GAAP earnings of $1.73 a share, which were below the Zacks Consensus Estimate of $1.78.

Total Revenue

Total revenue for the fourth quarter of 2013 was $1.03 billion, up 1.5% from $1.01 billion in the prior-year quarter. Revenues also surpassed the Zacks Consensus Estimate of $987 million. The top line was primarily driven by strong performances of the company’s Digital Commerce Solutions and Enterprise Business Solutions, which were partially offset by the Small and Medium Business (SMB) Solutions segment.

Segment Performance

Small and Medium Business Solutions segment sales declined 3% year over year and 2% (excluding the currency impact) to $597 million. The decline was attributable to a 4% year-over-year fall in North American Mailing revenues, which were at $437 million. Revenues in the International Mailing segment increased 1% to $159 million.

Enterprise Business Solutions segment sales increased 3% both year over year and on constant-currency basis. The segment reported a 6% year-over-year increase in revenues from worldwide production mail. The worldwide production mail benefited from the installation of sortation equipment in Europe and ongoing growth in supplies. However, revenues of Presort Services were flat year over year at $108 million as increase in new businesses was offset by a decline in revenue per piece of mail processed.

The Digital Commerce Solutions segment reported revenues of $176 million, a 17% year-over-year increase and 18% in constant currency. The revenue primarily benefited from continued strong growth in the company’s E-commerce solutions for cross-border package delivery and development in services-related software revenue. However, this was partially offset by a decline in marketing services revenue.

Expenses

The company’s total (SG&A) expense declined 27% year over year to $365 million in the quarter. Research and Development (R&D) expense was $29.1 million, increasing from $26.4 million in the prior-year quarter. Income from continuing operations of the company was $111.7 million in the quarter, compared with $125.8 million in the prior-year period. Lower income was attributable to R&D and restructuring charges as well as higher cost of equipment sales and business services.

Balance Sheet

Exiting the quarter, cash and cash equivalents were $907.8 million, down from $913.2 million as of Dec 31, 2012. However, long-term debt decreased to $3.3 billion from $3.6 billion as of Dec 31, 2012. Shareholders’ equity was $188.4 million compared with the prior-year figure of $110.6 million. Free cash flow for the quarter was $195 million while cash from operating activities was $131 million.

Outlook

Concurrent with the earnings release, Pitney provided an outlook for fiscal 2014.

The company expects continued revenue improvement in Digital Commerce Solutions, benefiting from continued growth in E-commerce and software solutions, while flat to modest revenue growth is predicted in Enterprise Business Solutions. Revenue in SMB Solutions is expected to improve, going forward, as a result of an uptrend in equipment sales.

However, the company expects free cash flow in 2014 to decline from that of fiscal 2013, attributable to the sale of the Management Services business and incremental capital investments related to a new ERP system.

Based on the above outlook, the company issued its guidance for fiscal 2014. For 2014, revenue growth (excluding the impacts of currency) is expected to be in the range of -1% to +2% while GAAP earnings per diluted share from continuing operations are expected to be in the range of $1.75 to $1.90, which include $0.10 per share in expenses related to the implementation of a new ERP system. Free cash flow is expected to be in the range of $475 million to $575 million.

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